Developer sees dollar signs in plan to build two airport hotels

Company to study market demand, negotiate terms with airport officials

Despite lagging demand and an oversupply of rooms in the region, the developer proposing two hotels at Sacramento International Airport is eager to start work.

The Sacramento County Board of Supervisors voted 5-0 on Wednesday to negotiate an agreement with Sonnenblick Industries LLC. Three years after plans for an airport hotel were scrapped, the Pacific Palisade company has proposed privately financing a 132-room budget hotel and a 200-room full-service hotel at no cost to the county. One reason, said company chairman Bob Sonnenblick: The airport’s former 89-room hotel, which was leveled to make room for the new Terminal B, had the highest occupancy of any hotel in Sacramento County for 40 years.

“It was kind of an old, grade B-minus hotel,”
Sonnenblick said. “Imagine what a good quality hotel would do in an even better
location within the airport and with a new $1 billion terminal to feed into it… I’m very excited about this project.”
Bob Sonnenblick
chairman,
Sonnenblick Industries LLC

The success of on-airport hotels in Sacramento will depend upon the success of the airport itself, said Alan Reay, president and founder of Atlas Hospitality Group. “That’s the big gamble there,” he said. “It’s really going to depend on the forecast for traffic at Sacramento International.”

Sonnenblick funded an initial feasibility study that indicated the airport could support two hotels with more than 20,000 square feet of meeting space.

As part of the agreement with the county, Sonnenblick will now commission a study to provide more in-depth information on market demand. Airport staff also will begin negotiations with Sonnenblick to finalize other terms and conditions, such as rent. The board will consider a more fully negotiated agreement at a later date. Linda Cutler, deputy director of commercial strategy for the airport system, said it’s standard practice for airports the size of Sacramento International or larger to offer a hotel. Sacramento draws travelers from a wide geographic area, including Napa and the Central Valley, who may take flights that leave early or land late, she said. She said there’s real value in being able to offer travelers an on-site hotel as an alternative to having to find ground transportation to get to a hotel in nearby Natomas, for example.

In addition, she said, hotel amenities, from business centers to restaurants, would generate revenue for the airport.
Sonnenblick proposes a development team that would include Gold River-based Tricorp Hearn Construction Inc. and San Francisco-based RYS Architects. The company’s proposal estimates gross revenue of $19.2 million in the first year and $30.4 million by year 10, according to a county staff report.

The proposal comes as Sacramento’s hotel market — which added space at a furious rate before being hit hard by the Great Recession – struggles to recover. In February, year-to-date hotel occupancy in Sacramento was 53.3 percent, up from 52 percent for the same two-month period a year earlier, according to figures from Atlas. Occupancy rates in 2006 exceeded 70 percent.

Airport hotels at San Francisco and Los Angeles are doing fantastic, Reay said. But the smaller Ontario International Airport – which, like Sacramento, poured big money into an expansion – has seen passenger traffic drop dramatically and is facing possible closure.

But Reay said Sacramento may be very different from Ontario, and less likely to lose business since alternative air travel is more than an hour away.
“There is no substitute for Sacramento,” he said. “I don’t think Sacramento will suffer the same fate.”
The airport, meanwhile, is working to attract new carriers – and passengers.

Just this week, the Sacramento County Board of Supervisors approved an incentive package totaling $400,000 to try to attract low-fare airline Virgin America Inc. to the airport. Airport officials have been in talks with Burlingame-based Virgin America for several months about adding service between Sacramento and Los Angeles.